Alliance Formation and Firm Value

Luis Cabral and Gonçalo Pacheco- de-Almeida ()
Additional contact information
Gonçalo Pacheco- de-Almeida: Strategy and Business Policy, HEC Paris, 78350 Jouy-en-Josas, France; CNRS Unit GREGHEC, UMR CNRS 2959

Management Science, 2019, vol. 65, issue 2, 879-895

Abstract: We consider the formation of alliances that potentially create complementarities, that is, when the value function is supermodular in firm resources. We show that, in a frictionless world where information is perfect and managers optimize, firm alliances disproportionately increase the value of high-resource-level firms, resulting in higher variance and higher skewness of the distribution of firm value; moreover, higher-value alliances are subject to regression to the mean at a faster rate. These effects are magnified if the degree of complementarities is endogenously determined by each firm’s investment. We also consider alliances where matching and/or information about firm resources are imperfect, and show that complementarities are a necessary but not sufficient condition for alliances to cause an increase in firm value; and that complementarities are neither a necessary nor a sufficient condition for alliances to be correlated with higher firm value.

Keywords: firm alliances; matching; competitive advantage (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2017.2954 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:65:y:2019:i:2:p:879-895

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().